Roth IRA for nephew

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
raveon
Posts: 195
Joined: Mon Dec 10, 2007 10:32 pm

Roth IRA for nephew

Post by raveon » Sun Mar 03, 2019 10:08 pm

My nephew (17 yrs old) had earned income in 2018, and was asking me for help in reviewing his tax forms. I convinced him that he should open up a Roth IRA at Vanguard and learn how to save, and put half of his income (~3K) in it this year. He is willing to it.

Which would be a better fund? I was thinking either VTSAX (Vanguard Total Stock Market 100% US) or VTWAX (Vanguard Total World Stock Index which is 70% US + 30% international).

Also for opening up his Roth IRA, does his parent has to do it? Or I can do it as a "custodian"? Or he can do it on his own?

User avatar
FiveK
Posts: 9226
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth IRA for nephew

Post by FiveK » Mon Mar 04, 2019 12:00 am

You'll know which fund is better only in hindsight. Either is a defensible choice.

It would likely be most straightforward for the parents to open a custodial IRA for the son. The age it becomes "his" depends on state law.

User avatar
ruralavalon
Posts: 18479
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Roth IRA for nephew

Post by ruralavalon » Mon Mar 04, 2019 11:19 am

raveon wrote:
Sun Mar 03, 2019 10:08 pm
My nephew (17 yrs old) had earned income in 2018, and was asking me for help in reviewing his tax forms. I convinced him that he should open up a Roth IRA at Vanguard and learn how to save, and put half of his income (~3K) in it this year. He is willing to it.

Which would be a better fund? I was thinking either VTSAX (Vanguard Total Stock Market 100% US) or VTWAX (Vanguard Total World Stock Index which is 70% US + 30% international).

Also for opening up his Roth IRA, does his parent has to do it? Or I can do it as a "custodian"? Or he can do it on his own?
Either fund is a reasonable choice for a 17 year old in my opinion.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

pkcrafter
Posts: 14063
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Roth IRA for nephew

Post by pkcrafter » Mon Mar 04, 2019 11:20 am

raveon wrote:
Sun Mar 03, 2019 10:08 pm
My nephew (17 yrs old) had earned income in 2018, and was asking me for help in reviewing his tax forms. I convinced him that he should open up a Roth IRA at Vanguard and learn how to save, and put half of his income (~3K) in it this year. He is willing to it.

Which would be a better fund? I was thinking either VTSAX (Vanguard Total Stock Market 100% US) or VTWAX (Vanguard Total World Stock Index which is 70% US + 30% international).

Also for opening up his Roth IRA, does his parent has to do it? Or I can do it as a "custodian"? Or he can do it on his own?
If your nephew wants to use Vanguard, I would suggest a lifestrategy or target retirement fund with 20% bonds. A parent will need to open the account I believe, but ask Vanguard if you can open it.

Here is some information--

http://money.com/money/4129260/children-roth-ira/


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Spirit Rider
Posts: 13163
Joined: Fri Mar 02, 2007 2:39 pm

Re: Roth IRA for nephew

Post by Spirit Rider » Mon Mar 04, 2019 11:42 am

Any adult can open a UTMA or UGMA(SC only) Roth IRA account. It does not have to be a parent or even a relation. Only an adult can open an owned Roth IRA account.

lakpr
Posts: 5295
Joined: Fri Mar 18, 2011 9:59 am

Re: Roth IRA for nephew

Post by lakpr » Mon Mar 04, 2019 11:44 am

Respectfully, I don't think any bond allocation is required for a 17 year old, they can be in 100% stocks to start with. Being that this is a "Roth IRA" we are talking about, he can easily switch over to a Target Date fund at a later time.

User avatar
KingRiggs
Posts: 506
Joined: Wed Dec 12, 2018 12:19 pm
Location: Indiana

Re: Roth IRA for nephew

Post by KingRiggs » Mon Mar 04, 2019 11:46 am

lakpr wrote:
Mon Mar 04, 2019 11:44 am
Respectfully, I don't think any bond allocation is required for a 17 year old, they can be in 100% stocks to start with. Being that this is a "Roth IRA" we are talking about, he can easily switch over to a Target Date fund at a later time.
+1 on that...
Advice = noun | Advise = verb | | Roth, not ROTH

Spirit Rider
Posts: 13163
Joined: Fri Mar 02, 2007 2:39 pm

Re: Roth IRA for nephew

Post by Spirit Rider » Mon Mar 04, 2019 1:23 pm

I take a contrarian view.

The amount of return difference between an 80:20 portfolio and a 100:0 portfolio is minimal given the amounts involved and the time duration as a custodial account. Also, you should consider that this should not only be an tax-advantaged investment vehicle, but a learning tool. You can't very well demonstrate the value of diversification if there is nothing to diversify to.

My oldest was freaking out late 2008 - early 2009 and that was with a substantial amount of bonds. It really impressed on her the importance of diversification and staying the course. When she assume control she had a much better understanding of the issues. I did the same with the youngest. It has worked out well for both of them with the hiccups in late 2016/early 2017 and late 2018.

Post Reply